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The Peril of Lawsuits for New Franchisors

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Yes, there is litigation in franchising. Franchisees do sue franchisors for various reasons. But while no one can tell you how to completely avoid these occurrences, there are several things a new franchisor can do to greatly reduce the likelihood. It all starts with the words of Benjamin Franklin,  “An ounce of prevention is worth a pound of cure.” A new franchise program should be and can be conceived with many ounces of prevention to avoid the high costs and disruptive effects of franchisee lawsuits.

In addition to being a successful franchisor with hundreds of franchisees and a multi-store franchisee, I have been retained as an Expert Witness in nearly one hundred lawsuits between franchisees and franchisors. In the great majority of these cases, after I have reviewed all the complaints, the answers to the complaints and other related documents, I pose the same question.

“Why are we here? And most important, what could we have done to prevent this?”

In most of these cases it is my strong opinion that these disputes need not have occurred. If certain preventative measures and certain courses of conduct were adhered to, both parties would have been spared high and unexpected costs and undue damage to their company and their entire franchise network. Emerging franchisors need to understand this and from the beginning of developing their system, recruiting new franchisees and interacting with them on an ongoing basis, they need to practice that all-important “ounce of prevention” as the way to greatly reduce potential franchisee lawsuits.

In addition to developing franchise programs for our clients, we educate them in the following ways so they too can avoid franchise lawsuits:

  • Understanding how to establish a healthy franchise relationship
  • Clearly defining the respective roles of franchisor and franchisee
  • The language used by lawyers in drafting Franchise Agreements
  • How to present your franchise offering
  • How to carefully select new franchisees
  • What to stress in training new franchisees
  • How to structure effective franchisee support programs
  • How best to regularly monitor franchisee performance
  • How best to regularly monitor your performance
  • Training your staff on how best to interact with franchisees
  • The role of Franchise Advisory Councils
  • Essential methods of communicating with franchisees
  • Early warning signs of discord and how to deal with them

These are but a sampling of activities, strategies and programs early stage franchisors must carefully develop in order to greatly reduce the chances of litigation and the prospect of some day finding  yourself in a courtroom asking, “Why are we here?”

Are you contemplating franchising your business?  Let us help you with a FREE Assessment of your business.

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